2% Drop in Price of Homes Predicted in Bay Area

2% drop in price of homes predicted Bay Area
Sue McAllisterMercury News

California house prices will fall by 2 percent next year, and 7 percent fewer houses will change hands, an economist for the state's largest real estate trade group said in a forecast delivered Wednesday.

The median price of the single-family houses sold in California in 2007 will fall to $550,000 in 2007 from a projected $561,000 this year, said Leslie Appleton-Young, chief economist for the California Association of Realtors, speaking at a Realtors conference in Long Beach.

If median prices do finish the year lower in 2007 than in 2006, it will be the first such decline since 1996, according to the group's records. Median home prices in the state fell throughout much of the 1990s, and 1996 was the last ``down'' year of that cycle, with the state's median price falling 0.5 percent from 1995.

Appleton-Young also predicted that sales of houses will fall to 447,500 next year from the 481,200 houses that are projected to sell by the end of 2006.

She did not make separate forecasts for different regions of the state, but said Tuesday in a phone interview that she expects the real estate market in some parts of the Bay Area -- especially San Francisco, the Peninsula and Silicon Valley -- to outperform the state as a whole.

"They've got growing jobs, growing income and not much competition from new construction,'' she said, referring to those areas' lack of land available for housing development.

Areas in which newly built homes form a larger part of the housing market, such as the Central Valley, and areas adjacent to them, such as the East Bay, will have softer markets, she said.

Joe Brown, president of Coldwell Banker in Silicon Valley, the South Bay's largest realty brokerage, said he agrees that Bay Area sellers and homeowners will do better than average for the state, but said he can't predict what prices will do locally in 2007.

"What we had a year ago, will we ever go there again? Was that really healthy?'' Brown said, referring to the extreme seller's market and overbidding that characterized 2005, and which has given way to a much slower market this year. ``I don't think it was healthy. You can't sustain that. . . . This is just the marketplace making an adjustment.''

During an interview before she gave annual predictions Wednesday to a conference of about 12,000 Realtors, Appleton-Young said housing prices rose so quickly in the state in the past five years that they simply had to stop, as homes became less affordable to more and more Californians.

In 2002, for example, the median price of houses rose 20.5 percent from 2001. In 2003, the increase was 17.9 percent. In 2004, it was 20.9 percent, followed by 16.2 in 2005. This year's increase is predicted to be 7 percent.

Appleton-Young said a key phenomenon in the state in the next couple of years will be how homeowners and prospective owners come to grips with home values that don't surge like that.

Some owners, for example, expect to use their home equity to fund everything from college to cars. She said homeowners will develop ``more realistic expectations, as both buyers and sellers adjust to a market where prices are not expected to appreciate significantly.''